A marginal increase in food subsidy, despite procurement cost going up every year due to increase in minimum support prices (MSPs) of paddy and wheat, has helped the government in reducing allocation for crucial food, fertiliser and fuel (LPG cylinder). These subsidies have been cut 4.7 per cent to ₹4.3 lakh crore during 2026-27, from an estimated ₹4.1 lakh crore in FY26 (Revised Estimate).

The government’s fiscal health is closely tied to its spending on essential social safety nets, such as agricultural subsidies, rural employment programs, and direct farmer transfers.

Finance Minister Nirmala Sitharaman said that the fiscal deficit in 2026-27 (BE) is estimated to be 4.3 per cent of GDP. “One of the main operational instruments for debt targeting is the fiscal deficit. I am happy to inform this august House that I have fulfilled my commitment made in FY 2021-22 to reduce fiscal deficit below 4.5 per cent of GDP by 2025-26. In RE 2025-26, the fiscal deficit has been estimated at 4.4 per cent of GDP,” she said.

Support for indigenous urea

There is a substantial reduction of 27 per cent in the subsidy on LPG gas cylinder, which is attributed to recent announcement of the government to compensate the oil marketing companies (OMCs) this year. In response to the growing burden of LPG under-recoveries, the Cabinet in August, 2025 had approved compensation of ₹30,000 crore for the OMCs, to be disbursed in 12 tranches. The total LPG under-recovery reached around ₹49,210 crore by June 30, 2025.

The fertiliser industry is hopeful that the reduction in allocation will not have any impact as the government has been raising the subsidy on phosphate (P) and potash (K) when global prices go up. In the current fiscal the subsidy on P&K was ₹49,000 crore at BE stage, which has gone up to ₹60,000 crore in RE. The allocation of subsidy for P&K, where is India is over 90 per cent import dependent, has been cut to ₹54,000 crore.

S Sankarasubramanian, Chairman of Fertiliser Association of India (FAI, said that support of ₹91,000 crore for indigenous urea and ₹32,000 crore for imported urea along with ₹34,000 crore for domestically produced P&K fertilisers and ₹20,000 crore for imported ones, reinforces supply security while maintaining farmer access to affordable nutrients.

Complex fertilizers face hurdles

“The emphasis on customs duty rationalisation and addressing inverted GST structures is particularly important, as it helps streamline costs, improve cash flows, and create a more predictable operating environment,” said Sankarasubramanian, who is also CEO, Coromandel International.

Suresh Kumar Chaudhari, FAI’s Director General termed the subsidy to strengthen industry’s resilience amid global volatility. It has reflected importance of input affordability and supply assurance.

On the other hand, Anand Kulkarni, Director, Crisil Ratings said that the allocation for urea may be sufficient, but complex fertilisers may face a 15-20 per cent shortfall due to the sustained higher prices of raw material and imported fertilisers. “However, in such a scenario, the government is likely to provide additional support to ensure adequate supply, in line with historical trend,” he added.

Published on February 1, 2026